Transcript jetBlue Airways Corporation

jetBlue Airways
Corporation
Firm Valuation
Travis Steele
jetBlue is overvalued by 2.4%
• The current market price for jetBlue is $6.84, our valuation
prices the company at $6.68
• jetBlue’s performance to date has been driven by offering
innovative amenities and lower fares for consumers
• Strong trend towards increasing operating margins and
efficiency
• In the long term jetBlue will lose its competitive advantage, but
will maintain market share through brand loyalty
• jetBlue’s creative marketing strategy will help maintain strong
revenue growth
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The Airline Industry
The Company
Marketing
Outlook
Valuation
Key macro drivers of industry profitability and demand
Oil Prices
Economic
Conditions
Substitutes
Regulatory
Environment
Airline Industry
Profitability &
Demand
Health/Safety
Concerns
The Airline Industry  The Company  Marketing  Outlook  Valuation
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Airlines are emerging from the worst decade in industry history
Revenue per Avg. Seat Mile vs. Cost per Avg. Seat Mile
$0.15
$0.14
$0.13
$0.12
$0.11
$0.10
$0.09
$0.08
$0.07
$0.06
$0.05
7/11/08- Oil Reaches record
high of $147.27 per barrel
RASM
CASM
Financial Crisis
9/11 Terrorist
Attacks
Data Source: US DOT Form 41 via BTS, Schedule P12; US DOT Form 41 P-12, Account 9899.
The Airline Industry  The Company  Marketing  Outlook  Valuation
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In the past decade, low cost carriers have gained market share
Total Market Share by Revenue
All Sectors
Low
Cost
Carriers,
16%
Other,
4%
Low Cost Carriers
Frontier,
6%
Virgin
America, 3%
AirTran,
13%
Legacy
Carriers,
80%
Southwest,
jetBlue,
19%
59%
Data Source: US DOT Form 41 via BTS, Schedule P12.
The Airline Industry  The Company  Marketing  Outlook  Valuation
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The Airline Industry
The Company
Marketing
Outlook
Valuation
jetBlue offers a distinctive flying
experience
High Quality
Customer Service
• Highest overall consumer satisfaction rating from JD
Power five years in a row
• jetBlue promise: “To continue to bring humanity
back to air travel”
Unique Amenities
• Live TV
• 4” extra leg room than traditional carriers
• Free snacks
• Youngest fleet in the industry (avg. age 4.3 years)
Geographic
Differentiation
• Strong presence around NY/Boston area
• Growth into underserved routes, including
international destinations
The Airline Industry  The Company  Marketing  Outlook  Valuation
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jetBlue’s profits trend upwards
jetBlue Net Income and Operating Margins
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
$80.00
$60.00
$40.00
$20.00
$$(20.00)
$(40.00)
$(60.00)
$(80.00)
$(100.00)
2005
2006
2007
Operating Margin
2008
2009
Net Income
The Airline Industry  The Company  Marketing  Outlook  Valuation
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jetBlue’s margins outperformed the industry in 2009
Operating Margins
10%
8%
6%
4%
2%
0%
-2%
Delta
United
Southwest
The Airline Industry  The Company  Marketing  Outlook  Valuation
jetBlue
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jetBlue is in a strong cash position today
800
700
600
500
400
300
200
100
0
-100
2005
2006
Debt Acquired
2007
2008
2009
Cash Acquired
The Airline Industry  The Company  Marketing  Outlook  Valuation
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The Airline Industry
The Company
Marketing
Outlook
Valuation
Capturing business travelers is essential to
jetBlue’s growth
Business traveler demand is becoming more price
sensitive as businesses strive to cut costs
Since 2009, jetBlue has positioned itself well to appeal
to this customer class
Launched ad campaign and promotional programs
aimed at business travelers
The Airline Industry  The Company  Marketing  Outlook  Valuation
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jetBlue relies on social media as part of its
innovative marketing strategy
The Airline Industry  The Company  Marketing  Outlook  Valuation
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The Airline Industry
The Company
Marketing
Outlook
Valuation
As competition increases among low cost carriers,
jetBlue will lose its competitive advantage
jetBlue Southwest Virgin America
2002
Frontier
AirTran
Low Fares
Satellite TV
Leg Room
Free Snacks
No Bag Fees
Premium Music
Wi-Fi
Ambience Lighting
The Airline Industry  The Company  Marketing  Outlook  Valuation
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jetBlue may lose some of its competitive advantage,
but will benefit from strong brand loyalty
jetBlue Southwest Virgin America
2010
Frontier
AirTran
Low Fares
Satellite TV
Leg Room
Free Snacks
No Bag Fees
Premium Music
Wi-Fi
Ambience Lighting
The Airline Industry  The Company  Marketing  Outlook  Valuation
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jetBlue is well positioned for future growth, but faces
risks
Influences on growth:





Fuel hedging
High utilization rate
Low operating costs
Brand loyalty
Delivery of new planes
Potential risks:




High level of debt
Unionization of labor
Industry consolidation
Substitutes to air travel
The Airline Industry  The Company  Marketing  Outlook  Valuation
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We recommend buying jetBlue Airways
The Airline Industry
The Company
Marketing
Outlook
Valuation
jetBlue’s revenue growth depends on the size of
its fleet
Number of Planes
350
300
250
200
150
100
50
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
The Airline Industry  The Company  Marketing  Outlook  Valuation
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jetBlue’s operating margin averages around 6%
jetBlue Operating Margin
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
2005
2006
2007
2008
The Airline Industry  The Company  Marketing  Outlook  Valuation
2009
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After accounting for fuel and other operating costs
jetBlue averages about 6% operating margins
100%
90%
80%
Total
Revenue
70%
60%
50%
Salaries
40%
30%
Fuel Costs
20%
10%
0%
2005
2006
2007
2008
The Airline Industry  The Company  Marketing  Outlook  Valuation
2009
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Discounting our future cash flows to present value we
get a share price of $6.68
The Airline Industry  The Company  Marketing  Outlook  Valuation
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P/E
Future P/E
Recommend
ation
PEG Ratio
JetBlue
34.23
10.89
2.1
2.22
Southwest
43.28
13.77
2.3
0.97
400.33
5.67
1.9
2.59
N/A
8.99
2.3
-1.88
Delta
American
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jetBlue is overvalued by 2.4%
• The current market price for jetBlue is $6.84, our valuation
prices the company at $6.68
• jetBlue’s performance to date has been driven by offering
innovative amenities and lower fares for consumers
• Strong trend towards increasing operating margins and
efficiency
• In the long term jetBlue will lose its competitive advantage, but
will maintain market share through brand loyalty
• jetBlue’s creative marketing strategy will help maintain strong
revenue growth
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Price of jet fuel is projected to continue rising, as the
economy grows and demand increases
Projected future price of jet fuel
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$-
Source: US Energy Information Administration
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